Geoff Gannon November 6, 2016

The Best Investing Book to Read if You’re Only Ever Going to Read One

Someone who reads my blog emailed me this question:

“Imagine you’re giving advice to a young person (early twenties) who just got their first job and has a 401k match program or has decided to set aside part of their paycheck each month for a tax advantaged investment account. They want to learn enough about investing to not get into trouble while managing their account, but they don’t want to turn this into a hobby or a part time job.

Is there one book or resource they should study to learn how to select suitable investments and manage them within a portfolio over time that you’d recommend? Imagine they’ll never read or think about the subject again, this is your one shot to set them on a good path. What do you recommend for the everyman investor?”

That’s a good question. And a tough one to answer. I can quickly come up with a list of books I’d recommend as a group. Everyone should read Peter Lynch’s “One Up on Wall Street” and “Beating the Street”. Joel Greenblatt’s “You Can Be a Stock Market Genius” and “The Little Book that Beats the Market”. Ben Graham’s “The Intelligent Investor” (the 1949 edition is best). And then Phil Fisher’s “Common Stocks and Uncommon Profits”. Just writing this I’d say that maybe the number one book I’d recommend – if I was only recommending one – is Phil Fisher’s “Conservative Investors Sleep Well.” Now, technically, “Conservative Investors Sleep Well” is included in “Common Stocks and Uncommon Profits”. It was originally published as a separate book. So, if you’re willing to count it as a separate book – even though it’s only available as a really old, used book in that form – I might say “Conservative Investors Sleep Well” is the one book I’d recommend.

Why wouldn’t I make the Lynch books, the Greenblatt books, or the Graham book the one and only book to read? A few of them are too specialized. I’m a big Ben Graham fan. But, Ben Graham is not a good choice for someone who doesn’t want to spend a lot of time picking stocks. His approach takes a lot of time to implement. And it can be dangerous if done wrong. Greenblatt’s best book is “You Can Be a Stock Market Genius”. I think that’s the single best book on investing. But, it’s not the one I’d recommend for someone who isn’t going to focus on investing all the time. His other book “The Little Book That Beats the Market” is the easier one to implement. But, it’s not that different from indexing. That is what Warren Buffett would recommend – the John Bogle approach. If an investor isn’t willing to put in the time to research stocks in depth, he should just buy the S&P 500. I don’t know if I agree with that. There is another way you could make things work I think.

Let’s say you only picked one stock a year. And let’s say you never sold stocks. So, there was no question of Graham’s “group operations” like net-nets and there would be no question of Peter Lynch’s higher turnover approach. Greenblatt’s best book focuses a lot on spin-offs and such. It’s a high turnover approach. And his other book (the Magic Formula one) suggests flipping the stocks each year. You obviously don’t have to do that. But, I’d suggest that an investor who doesn’t want to think too much – or doesn’t want to think too long at least – should follow the Phil Fisher approach as much as possible.

So, if we’re committed to the idea that an investor who doesn’t want to spend a lot of time tending his portfolio should focus on Phil Fisher’s writings – we’re left with a choice between “Common Stocks and Uncommon Profits” and “Conservative Investors Sleep Well”. Like I said before, you can buy these two together in one book now. So, if we’re counting them as one book – that’s the book I’d recommend.

This means I’m suggesting a growth investor approach instead of a value investor approach. My second choice wouldn’t be a value investor either. I’d say the single best investing book to read if you’re only going to read one is Phil Fisher’s “Common Stocks and Uncommon Profits” and the second-best choice is Peter Lynch’s “One Up on Wall Street”. These books are the most approachable for the new investor. Ben Graham’s 1949 Intelligent Investor would probably be my third choice. So, there you have a Fisher, a Lynch, and a Graham to choose from. Fisher is the ultimate buy and hold growth investor. Graham is the ultimate value investor. And Lynch is somewhere in between. If this new investor had any idea temperamentally which author he lined up with most, he could read that guy’s book. But, if I had to recommend just one I’d recommend the Fisher.

Why? Phil Fisher was a buy and hold investor. And I don’t see any way to invest successfully without putting in a lot of time unless you’re a true buy and hold investor. So, if someone said they don’t want to make investing a profession or a hobby – but they do want to put money away for the rest of their life in stocks they themselves choose, then that person must commit to buy and hold. There’s no other way for this to work.

Committing to a buy and hold approach solves a lot of problems. The average investor probably spends half their time worrying what they should sell and when they should sell it. If you simply commit to the idea that you will literally never sell – then you can double the amount of time you spend thinking about which stock to pick in the first place. Ben Graham’s approach would work fine in a buy and hold sort of way. You can buy low price-to-book stocks and the like and hold them for 5 years without any problem. But it’s a group approach. Graham wanted the “defensive” investor to have something like 20 stocks in his portfolio. Even for the individual investor, his idea of diversification was 10 to 30 stocks – never a handful like Fisher was willing to focus on. So, I don’t think you can go with the Graham approach unless you are willing to put in the time. If you aren’t willing to put in the time – your two choices are Bogle (indexing) or Fisher (buy and hold forever).

The next thing I’d recommend to someone who wanted to pick his own stocks but didn’t want to spend much time picking those stocks is to only buy one stock a year. I think that would – when combined with the commandment to never sell – be a big help. Why?

How selective you can be in your stock picking is the result of how many decisions you make and how much time you have. The less time you have – the fewer decisions you should make. Now, the Fisher approach solves part of the problem for us. Fisher was a buy and hold investor. He felt that if you picked the right stock to start with the right time to sell that stock was never. I agree. Not for all investors. But for an investor who doesn’t want to make this his profession or his hobby. For that investor, you never want to waste a second thinking about selling. So, you buy and literally hold forever. That cuts the amount of decisions you have to make in half. But, unless you also make a decision about how often you are going to buy a stock – you’ll have a problem. There will still be the problem of portfolio allocation. What if you have 5 good ideas one year? Should you put 20% of your savings for that year in each? Or should you focus on the best idea to the tune of 50% of that year’s savings? There’s an easier answer. Always put everything you add to your 401k in a given year into just one stock. For a trader, this would lead to a lack of diversification. But for a true buy and hold forever investor – the level of diversification will be big. You mentioned an early 20s investor. Let’s take a 25-year-old. He picks one stock a year and puts all he adds to his savings into just one stock. By the time he’s 40 years old he owns 15 different stocks. Now, some of these stocks could go bankrupt. Some could be sold out for cash. So, maybe the number isn’t 15. But even if one company takes over another in an all-stock deal – he’ll just keep his shares in the new, merged company. Likewise, if there’s a spin-off, he’ll keep his shares in that too. Because, remember, he’ll never sell. So, he will end up more diversified than Phil Fisher was. Because Phil Fisher didn’t keep close to equal amounts in 15 different stocks.

The other benefit to needing to pick only one stock a year is that this investor – who doesn’t want to spend too much thinking on his own, remember – can do a lot of copycatting. The press covers what Warren Buffett bought this year. It covers spin-offs and scandals and IPOs and mergers and so on. So, there will often be a stock in the news that could catch this investor’s interest without a lot of him having to do background searching. For example, let’s say this investor eats at Chipotle (CMG). Well, Chipotle is having a hard time. I don’t have an opinion about the stock. But, this investor certainly could see the stock mentioned in the news. He could focus on that stock because he eats there. And it might be the one he decides to buy and hold forever. Or, he could read in the news about a possible merger. For example, you have the whole Viacom drama with Sumner Redstone and whether it will merge with CBS. If this investor is in his early 20s right now, he’d have grown up with MTV and Nickelodeon. He’d have seen plenty of Comedy Central. He might have a view on Viacom. Or, he might be reading about Brexit online somewhere. And it is just this political drama on another continent. But, then, he reads something about how much the Pound has dropped or how much some of the stocks over there have gone down. And so he focuses – for this year, and this year only – on U.K. stocks. He only has to find one. He knows that going in. Looking through the carnage like that is more of a Peter Lynch approach than a Phil Fisher approach. In fact, what it’s like is Peter Cundill. There’s a good book that draws from Cundill’s journals. It’s called “There’s Always Something to Do”. I didn’t list the top 5 books I might recommend to the kind of investor you talked about – but I think that Cundill book would make the list. It’s a good book for telling you about the psychology of investing. The psychology of holding especially.

The most important thing this investor will need to learn from these books is the need to hold when others are selling. Not just the need to be contrarian. But the need to hold during those times when others would sell. So, maybe “There’s Always Something to Do” would be a good choice. Those would be my top 4 I think. Number 4: “There’s Always Something to Do”, Number 3: “The Intelligent Investor (1949)”, Number 2: “One Up on Wall Street”, and Number 1: “Conservative Investors Sleep Well”. If I’m allowed to cheat – because it is now packaged as one book – I’d choose Phil Fisher’s “Common Stocks and Uncommon Profits and Other Writings” as the one book for this new investor to read. My one recommendation though would be that while it’s enough to read this book and only this book – it’s not enough to read it only once. If this investor would commit to re-reading “Common Stocks and Uncommon Profits and Other Writings” every year, buying only one stock a year, and never selling – I think he could do okay. That’s not much of a commitment. Re-read (the same) one book a year and buy one stock a year. But I don’t know many people who would actually stick to it.

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